Bank of England cuts interest rates again

The Bank of England has cut interest rates for the third time in four months in a new effort to insulate the British economy from the slowdown in the US.

The Bank's nine-member Monetary Policy Committee voted to shave another quarter-point off the official cost of borrowing, taking it from 5.5% to 5.25% - its lowest level since October 1999.

The decision will be warmly welcomed by industry and unions who have been calling for a rate cut in order to provide a much-needed injection of confidence at a time of global uncertainty.

It will also mean lower mortgage payments for millions of homeowners, while providing a welcome pre-General Election boost for the Government.

The Halifax and HSBC banks immediately announced 0.25% cuts in their variable mortgage rates.

The Halifax said it would be matching today's interest rate cut, reducing its variable mortgage rate by 0.25% to 6.25% with immediate effect for new borrowers, and on June 1 for existing borrowers.

The group said its mortgage rates would remain at their lowest levels since 1965 following the cut.

HSBC also passed on the cut slashing its variable rate to 6.00% from June 4, reducing payments on a £60,000 mortgage from £395.80 a month to £386.58.

David Sears, deputy director general at the British Chambers of Commerce, said the Bank had "won the business vote" with its decision to lower rates.

He said: "With business already planning to reduce output, this will bring a boost to confidence and add further insulation against the US slowdown and the wider impact of foot-and-mouth."

Mr Sears warned the Bank, however, it should not hesitate to cut rates again next month even though the decision would have to be taken a day before the General Election.

"The Bank should not hesitate to act if the economy requires it," he said.

Digby Jones, director general of the Confederation of British Industry, also applauded the move.

He said: "Companies will be relieved the Bank has seized the opportunity to soften the impact of the global slowdown.

"This was a timely and proportionate move that will steady business nerves without taking risks with inflation. We need to keep rates moving in a downward direction as quickly as prudently possible."

Stephen Radley, chief economist at the Engineers Employers' Federation, said the decision to cut rates would give manufacturers "some relief" as conditions started to get tougher.

He said: "With margins set to be squeezed further by a slowing world economy, a cut in the cost of borrowing will give business a breathing space."

The cut had been widely predicted in the City, where some felt the monetary policy committee may even opt for a 0.5% reduction.

David Page, economist at City stockbroker Investec, said: "There was a clear case for a rate cut.

"We have seen more deterioration in the economy over the last weeks, with the slowdown in Europe having an effect on manufacturing."

He added: "There is every possibility of a further 0.25% cut before interest rates head up again."

Earlier today, figures released by the Office for National Statistics showed manufacturing output fell 0.3% in March, adding to the evidence that the global economic slowdown is hurting UK businesses.

Industrial production also fell during the month, going down by 0.2%.

TUC general secretary John Monks said the cut was "very welcome", adding: "It is a sensible insurance policy which will help protect the UK from any economic fall-out from across the Atlantic.

"It also boosts industrial confidence in a sector which has had more than its fair share of bad news recently."

Mr Monks said the Bank should be ready to cut rates again if there was any sign of the euro-zone economy stalling.

Ruth Lea, head of policy at the Institute of Directors, said the cut was "sensible", adding: "The British economy is showing signs of slowdown and the continued negative international economic developments will further depress activity."

Roger Lyons, general secretary of the Manufacturing, Science and Finance union, said the Bank should have cut rates by 0.5% to settle nerves in manufacturing, adding that the announcement was an "opportunity half squandered."

Citibank, Barclays and HSBC all announced they would be lowering their base rate, which is applied to products such as savings accounts, to 5.25% following the cut.

Intelligent Finance, the Internet and telephone arm of the Halifax, also said it would be passing on the cut to lenders, reducing its discounted mortgage rate to 4.5% and its standard variable rate to 6.0% from June 5.

It claimed this was the lowest mortgage rate for nearly 40 years and one of the lowest rates since records began.

Virgin One said it would be dropping its mortgage rates by 0.25%, putting its standard variable rate at 6.45% from midnight tonight for both new and existing borrowers.

In a statement, the MPC cited the worsening global economic outlook as the main reason for the cut.

"The world economic outlook has, on balance, continued to weaken. The extent and duration of the slowdown remain uncertain," it said.

In the UK, while demand had so far remained firm, economic growth in the three months to the end of March had been "slower than expected" and there was "some weakening" in business confidence.

Nationwide Building Society said it would be passing on today's cut to its borrowers, reducing its standard variable mortgage rate by 0.25% to 6.49%.

The Royal Bank of Scotland also cut its base rate, reducing it by 0.25% to 5.25%.